When a foreign company operates through a branch in the U.S., it is subject to a special tax known as the branch profits tax.
The branch profits tax is a tax imposed on foreign corporations that operate in the U.S. through a branch instead of a subsidiary. This tax is in addition to any tax on income that is effectively connected to the business activities conducted in the United States.
Broadly, the branch profits tax is equivalent to the dividend tax that would be due if the branch had been a subsidiary of the foreign company and distributed its profits as dividends.
The branch profits tax rate is 30% (as of 2025) on the net earnings of a foreign corporation’s U.S. trade or business. Unless the earnings are reinvested in US trade or business.
Example: A German company operates a U.S. branch that earns $100,000.
Let’s assume the German company reinvests $30,000 of its net earnings of $100,000 back into U.S. trade or business assets. The German company will likely be subject to branch profit tax on the remaining $70,000 ($100,000 – $30,000). The branch profits tax rate is 30%, so the tax amount will be $21,000 ($70,000 × 30%).
Any earnings that are not reinvested are considered deemed repatriation and are also subject to the 30% tax. Therefore, the entire $100,000 would be considered deemed repatriated in this case.
Broadly, the taxation on branch profits ensures that foreign branches are taxed similarly to U.S. subsidiaries that distribute dividends to their foreign parent companies.